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Prospects Daily: Market reaction to U.S election outcome mixed, Poland and Kenya cut key policy rates

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Financial Markets…The MSCI Asia Pacific Index climbed 0.7% as a clear U.S. election outcome came on the eve of a leadership change in China. The Stoxx Europe 600 Index lost 0.3%, erasing earlier gains, and U.S. equities opened lower, as the initial U.S. election euphoria faded.

U.S Treasury yield declined the most in two months, with the benchmark 10-year yield sliding 9 basis points to 1.67%, as the re-election of President Barack Obama fueled speculation the Federal Reserve will continue its quantitative easing policy. The 2-year note yield dropped 4 bps to 0.27%, while the 5-year yield slipped 8 bps to 0.68%.

Standard & Poor’s upgraded its long-term sovereign credit rating on Nigeria to ‘BB-’ from ‘B+’ citing sustained reform momentum in several key areas, improving fiscal management, and high oil prices. At the same time, the rating agency affirmed the short-term sovereign rating at ‘B’.

High-income Economies
Euro Area retail sales fell 0.2% (m/m) in September, reversing a 0.2% rise in August, as a steep 7.3% (m/m) decline in Spain offset monthly increases in France and Germany of 1.5% and 0.8%, respectively. However, sales rose 1.5% on a quarterly annualized basis (3m/3m saar) in September, compared to a 1.1% increase in August and 0.4% rise in July, suggesting a gradually strengthening, albeit still very weak, Eurozone consumer demand. 
Germany’s industrial production fell a second month in September, declining 1.8% (m/m) (-1.2% y/y), following a 0.4% drop in August. The decline confirms earlier data on weaker factory orders even as the Eurozone sovereign debt crisis damped output of German manufactured products (-2.3% m/m), while capital goods products fell 3.5% (m/m) as firms cut back on investment plans amid declining business confidence.

Industrial production in Spain dropped for the 13th straight month on an annual basis in September, falling at a faster 7% (y/y) pace compared to a 2.5% decline in August amid a deepening recession, fiscal austerity measures, and the higher unemployment rate (25.8 percent) in more than a decade. 

Norway industrial production fell 5% (y/y) in September (-5.6% m/m), as energy products output was lower by 12.7% (y/y). However, manufacturing production rose 2.4% (y/y) with strong production growth recorded in industries including machinery and equipment, together with ships, boats and oil platforms. 

consumer price inflation accelerated to 4.1% (y/y) in October from 3.8% in September (+0.2% m/m), mostly due to an a 6.3% (y/y) increase in food prices, as well as similar rates of increases in consumer goods and housing costs.

The central bank of Poland cut is benchmark reference rate by 25 basis points to 4.5% to support economy. The inflation rate remains steady at 3.8% (y/y) in September – slightly above the central bank’s 2.5% (+/-1%) annual inflation target.

Developing Economies
Brazil's consumer price inflation accelerated in October to 5.45% (y/y) from 5.28% in September, on a faster pace of increase in food prices.

industrial production declined in September, with the IP index falling 1.3% (y/y) compared with a 2.6% increase in August, on declining production in manufacturing sector.

Colombia's consumer price inflation at 3.06% (y/y) in October remains at the midpoint of the central bank’s 2- 4% annual inflation target. 

The central bank of Kenya further cut its Central Bank Rate (CBR) by 200 basis points to 11% allowed by a continuous decline in inflation to 4.14% in October from September's 5.32% and well within that central bank's upper inflation band of 7.5% and stable exchange rate.

gross fixed investment growth slowed to 3.7% in August compared with 6.6% in July, with investment declining 0.9% (m/m) in August compared with a 0.59 expansion in July.

inflation rate slowed insignificantly to 6.5% in October from 6.6% in the previous month, still above the upper limit of the central bank's 5-6% target range.